Hey everyone! One of the coaches at Unger Academy here and welcome to our usual chat on the strategies of our portfolio that have performed the best in the last period.
Okay. So, this week we’re going to be talking about two smaller markets belonging to the world’s largest exchange, the CME, namely the Chicago Mercantile Exchange, where many commodities are traded, but also, for example, equity indexes and currencies.
So today I’m going to show you two strategies for two different raw materials belonging to the Meat market. Specifically, we’re going to see a strategy for the Feeder Cattle future and another one for the Lean Hogs future, which basically tracks the price for pork belly, which, as we know, is widely consumed in Anglo-Saxon breakfasts around the world.
Feeder Cattle, on the other hand, are young breeding cattle and also represent a very important part of the American economy.
This future, the Feeder Cattle future, trades very few contracts. It has a very low liquidity during the day. The session of this future lasts just a few hours because it opens at 8:30 am Chicago exchange time and then closes at 1 pm. So we have only 4 and a half hours of trading.
Same thing for the Lean Hogs market. Since it belongs to the same category it shares the same session times with its little brother, we will call it that, the Feeder Cattle market.
Now let’s look at the first strategy that I want to show you today, the one for Lean Hogs. This strategy… And, in general, these markets can be approached also with reasonable stop losses, not too big, in the range of $400-500-600, which are certainly much more approachable than the stop losses that we would need to use to trade Gold or other heavier markets such as Crude Oil, which today is worth $100,000 per single contract. Whereas in this case, we are dealing with more reasonable prices.
The strategy is based on a trend-following approach and is built on 5-minute bars. This strategy uses a price channel calculated on the highest highs of the last 12 bars and on the lowest lows, for the short side, still of 12 bars, and enters at the breakout of this channel.
This strategy, let’s see the report here, in the last 360 trading days has achieved these results. About $13,000 in profits. With this, let’s say, central phase where drawdowns occurred.
But, as I mentioned before, these are drawdowns of about $5,000, which although not pleasant, are definitely smaller drawdowns than those that we see on other markets.
Let’s move on to the next strategy which, as I mentioned, is on Feeder Cattle. It’s also a trend-following strategy, but this time we’ll place orders starting from a certain time, which is 10:30 am, so starting from 2 hours after the beginning of each session, until 12:00 pm, so until 1 hour before the end of the session, we’ll enter at the breakout of the highest high or the lowest low of the previous day.
Also this strategy has made some excellent profits. The strategy was more consistent than the other strategy. The Feeder Cattle market, as I said before, isn’t a very liquid market so we’ll need a better average trade.
In this case, commission and slippage costs have already been included, as well as in the other strategy. But, in general, I recommend that you pay special attention to the average trade value because it must be large enough to cover and protect you from slippage risks. So, guys, go and try it too.
Here are the annual results of the strategy as well. And yes, you can see that 2021 was very positive, and 2022 all together is still on par, despite having already paid commission and slippage costs. So yeah, give it a try as well!
These markets are purely trend-following, so they like to follow trends and stay in trend for multiple days. Try to develop some strategies of this type and you’ll surely discover something that’s very interesting.
If there is someone among you who is interested in the world of systematic trading, I suggest that you click on the link in the description below. From there you’ll be able to watch a video of Andrea Unger or get our best-selling book covering only the shipping costs or even book a free call with a member of our team.
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And with that, this video is over! I will see you soon in our next one, goodbye everyone!
